Debt crisis unlikely for U.S. and U.K.

Nobel laureate Paul Krugman wrote a paper to be presented at the International Monetary Fund conference today. In his paper, Krugman argues that the U.S. and U.K. are immune from the type of debt crisis that plagued five Eurozone countries because they borrow in their own currency and aren’t part of a monetary union. He wrote that “Fear of a Greek-style fiscal and financial crisis has loomed over much of our policy discourse over the past four years, and has played a significant role in shaping actual policy, constituting the principal argument for austerity in countries that don’t face any current difficulties in borrowing.” Krugman argued that despite continued warnings of an imminent crisis, no crisis has occurred, and in fact the worst thing that would happen would be a loss of confidence which would lead to a drop in the value of the dollar.

Today's Events • The Euro traded lower after the ECB unexpectedly cut the benchmark rate by a quarter-point to a record low .25% in an effort to fight the potential for deflation. ECB President Draghi indicated that the euro area risks a “prolonged period” of low inflation after cutting the benchmark rate. • U.S. third quarter GDP grew at 2.8%, significantly stronger than the 2.0% expected pace of growth. This strong pace of growth is however tempered by a buildup in inventories. • The GBP weakened against the USD after the BOE kept their policy rate at a record low of .50% and maintained its bond-buying stimulus target. • The AUD fell today after Australian employment dropped by the most in over a year and the country’s unemployment rate ticked up to 5.7%.

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Nobel laureate Paul Krugman wrote a paper to be presented at the International Monetary Fund conference today. In his paper, Krugman argues that the U.S. and U.K. are immune from the type of debt crisis that plagued five Eurozone countries because they borrow in their own currency and aren’t part of a monetary union. He wrote that “Fear of a Greek-style fiscal and financial crisis has loomed over much of our policy discourse over the past four years, and has played a significant role in shaping actual policy, constituting the principal argument for austerity in countries that don’t face any current difficulties in borrowing.” Krugman argued that despite continued warnings of an imminent crisis, no crisis has occurred, and in fact the worst thing that would happen would be a loss of confidence which would lead to a drop in the value of the dollar.

Today's Events • The Euro traded lower after the ECB unexpectedly cut the benchmark rate by a quarter-point to a record low .25% in an effort to fight the potential for deflation. ECB President Draghi indicated that the euro area risks a “prolonged period” of low inflation after cutting the benchmark rate. • U.S. third...Read More